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Danish Central Bank Cuts Rate
To Align With Euro Zone Levels

COPENHAGEN -- The Danish central bank Friday cut its key lending rate by one-tenth of a percentage point to 5.30%, but left its other key rate, the discount rate, unchanged at 4.75%.

The central bank said the move was made in order to adjust Danish rates to the rates of the European Central Bank.

Bank of England Cuts Rates, Nearing ECB's Key Lending Levels

ECB Leaves Rates Unchanged, Optimistic About Euro Growth (Feb. 2)

"We consider that, with the present currency situation in mind, an interest gap of 55 basis points between our lending rate and the cut-off rate of the European Central Bank is appropriate," said Bjarne Skafte, spokesman for the Danish Central Bank.

The ECB's minimum bid rate is at 4.75%.

The cut comes a day after the Bank of England cut its base lending rate to 5.75% from 6%. Economists say that move was meant to shield the United Kingdom from the impact of the economic slowdown in the U.S., though it also brought British rates more closely in line with the European Central Bank's official rates.

Denmark's rate cut Friday is the first since Oct. 27, when the central bank reduced the rate to 5.40% from 5.50%.

After Denmark's Sept. 28, 2000, referendum vote not to join the euro zone, the central bank lifted the lending rate by half a percentage point to 5.60%. The central bank then eased twice in October last year by a total of 20 basis points.

Since then, the bank has kept the rates steady despite market expectations of a narrowing of the spread over ECB rates.

"We have being expecting a normalization of the spread over ECB rates to around 50 basis points, but the timing of this move was a bit of a surprise," said Helge Pedersen, chief economist with Unibank in Copenhagen.

"The cut will send a strong signal to the markets that the central bank is feeling comfortable with the current (krone) situation," Mr. Pedersen said.

The bond and currency markets took Friday's cut in stride. In midday trading, the 10-year government bellwether bond yielded 5.03%, unchanged from the level seen just before the announcement.

The Danish krone was trading at 7.4603 kroner to the euro, slightly stronger than 7.4615 kroner Thursday. The krone's central parity rate in the European Monetary System's exchange rate mechanism is 7.46038 kroner to the euro.